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Matthew Whiz Buckley
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Matthew Buckley is the founder and CEO of Top Gun Options LLC and a Managing Partner at Wealth Creation Investing LLC. Matt was formerly the Managing Director of Strategy for PEAK6 Investments, L.P., one of the largest volatility arbitrage options trading firms in the country. He was the founder... More
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  • Top Gun Options AMZN April Bull Put Spread 4 comments
    Mar 9, 2012 12:21 AM | about stocks: AMZN

    Follow this link to view the Trade Alert Video

    Strategic Mindset: At Top Gun Options we're market neutral but have identified a potential target that is making headway in this interesting market.

    Target: Amazon (NASDAQ:AMZN) currently trading at $186.38

    Commit Criteria: With the release of Apple's (NASDAQ:AAPL) "new iPad" still being digested by the market and consumers and a recent legal dust up between Apple and Amazon (follow this link to read more), the Top Gun Options Trading Team has identified a potential bullish trade on AMZN. We've been bullish on the stock for a couple months now because of its power over online media content and strong earnings, while a downgrade from Morgan Stanley (NYSE:MS) had caused a stock drop of over $5. As you can see on our virtual trade MONSTER platform, the giant retailer has found support at 170 in the past 3 months and more recent, the 175 level.

    3 MONTH CHART:

    Tactic: April Bull Put Spread (also known as a Credit or Vertical Spread)

    Tactical Employment:

    • Sell to Open 15 April 175 PUTS
    • Buy to open 15 April170 PUTS
    • For a net credit of $1.08 per share
    • Maximum risk = $5,880 (5% of Primary/Intermediate Model Portfolio)
    • Maximum reward = $1,620

    Tactical Analysis:

    Theta (time decay) is working in our favor. The more time that goes buy the more premium we get to keep.

    Midcourse Guidance:

    This is a high probability trade - we have a 74% probability of capturing the full credit in this trade. But like in combat and trading…nothing goes as planned.

    Eject Level: At Top Gun Options we have strict risk management rules of engagement so we can live to fight another day if things go south on us. We would eject from this trade if we lost 50% of our credit, or .54. However we don't like ejecting right before we hit the ground. We keep a tight leash on our trades and would re-evaluate this trade if it hit 25% loss of credit received.

    Profitability Target: The trade objective is to allow the spread to expire worthless (above $175) and collect the full credit, or close at .05 to play it very safe.

    Threats to success: If the litigation speeds up (SOLD!) or if some other large market moving force (Israel attack on Iran) occurs we may see a pull back in the stock. But this is why we trade options - we're hedged if the world goes to hell in a hand basket.

    Exit Tactic: Buy to close the 175s and sell to close the 170s.

    Happy Hunting and Make Sure You Hedge!

    Whiz

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: AMZN
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Comments (4)
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  • manvscode
    , contributor
    Comments (15) | Send Message
     
    Hmmm. I don't think this will happen.
    15 Mar 2012, 11:52 AM Reply Like
  • Matthew Whiz Buckley
    , contributor
    Comments (36) | Send Message
     
    Author’s reply » Position up over 17% in under a week.

     

    Care to enlighten us as to why you 'don't think this will happen'?

     

    Whiz
    15 Mar 2012, 09:48 PM Reply Like
  • manvscode
    , contributor
    Comments (15) | Send Message
     
    Before today, the 10 day chart was channeling down. In my humble opinion, I believe AMZN is over valued.
    16 Mar 2012, 11:47 AM Reply Like
  • Matthew Whiz Buckley
    , contributor
    Comments (36) | Send Message
     
    Author’s reply » I agree, I definitely see a pennant forming but based on fundamentals and current market environment I think the breakout will be to the upside.

     

    The BE on the trade is 173.85 and we currently have a 76% probability of BE and a 75% probability of keeping all the premium we collected.
    16 Mar 2012, 12:03 PM Reply Like
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